China is overtaking the U.S. in mobile phone sales, which is mostly just a problem for Apple

By Carmel DeAmicis , written on May 28, 2014

From The News Desk

For the first time ever China will beat out the U.S. in mobile phone sales in 2014, according to a new report out by international research firm Strategy Analytics. It will both sell more units, at 430 million and bring in more revenue at $87 billion. Meanwhile the US is expected to sell 267 million less units and bring in $27 billion less in revenue.

 This is a moment that surprises no one. For years, analysts have been portending the growing Chinese opportunity. With a bigger population of 1.35 billion, compared to the United States 313 million, less smartphone saturation, and a high growth rate of the smartphone industry, China's new telecom perch is a natural conclusion.

That said, it’s far too soon to start decrying the death of U.S. telecom supremacy. According to analysts, profits margins are still far and away much higher in America because phones are more expensive.

The growing China market is a good news for a lot of the telecom companies that have a firm foot in the East: Samsung, Huawei and Lenovo, which recently purchased Google’s Motorola branch.

Who loses as China gets bigger? Mostly just Apple. The company has notoriously struggled with traction in the huge country because there’s more app options on Android for Chinese users, and the iPhone prices are too high for the typical Chinese consumer. The Apple 5c was rumored to be the company’s big play for the price-conscious Chinese buyers. But as we all know, that launch went over like a dud, with the $600 - $700 starting price tag still not enticing enough to attract the low end of the market. At this point, Apple is the 5th biggest smartphone provider in the country, with only 7 percent of the market share.

If the US market is getting saturated as the Chinese market is just taking off, what does that mean for Apple’s revenue?

If its recently signed partnership with the country’s biggest wireless network, China Mobile, does well then Apple sales might increase in China and it will benefit from the growing Chinese smartphone market. Apple stumped analysts and itself by posting better than expected revenue last quarter, largely due to increased sales in China.

But if those sales stagnate, it’s a further sign that the iPhone may not be the company’s biggest breadwinner in the future. For a hot minute, there was some talk about tablets making up the bulk of Apple’s revenue in the next decade, but with the iPad’s declining sales, such chatter quickly dissipated. Some have, perhaps rightly, called the tablet Apple’s “failed opportunity for growth.”

Given all of the above, the significance of the expanding Chinese telecom industry becomes clear. Apple needs to start dominating in China, or run the risk of sounding its growth death knoll.

[image adapted by Brad Jonas for Pando]